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PILOT CIRCULAR ECONOMY CASE STUDY ANALYSIS – DOMICILIARY EQUIPMENT SERVICES A Report to Green Industries SA
21 March 2019
Prepared by
BDO EconSearch
Level 7, BDO Centre, 420 King William Street Adelaide SA 5000 Tel: +61 (8) 7324 6190 https://www.bdo.com.au/en-au/econsearch
Pilot Circular Economy Case Study Analysis - DES i Prepared by BDO EconSearch
TABLE OF CONTENTS
Tables iii
Abbreviations iv
Document History and Status iv
Executive Summary v
1. Introduction 1
1.1. Background 1
1.2. The Case Study Organisation 1
1.3. Scope of Study 2
1.4. Report Structure 3
2. Method of Analysis 4
2.1. Circular Economy Indicators Assessed 4
2.2. Client example analyses – data and assumptions 5
2.3. Organisation level analysis – data and assumptions 8
3. Client Example 1 Analysis 10
3.1. Description 10
3.2. Results 11
3.2.1. Increased functionality and/or longevity of goods/services 11
3.2.2. Decreased materiality of goods/services 12
3.2.3. Indicators of broader economic, environmental and social benefit 12
4. Client Example 2 Analysis 14
4.1. Description 14
4.2. Results 15
4.2.1. Increased functionality and/or longevity of goods/services 15
4.2.2. Decreased materiality of goods/services 15
4.2.3. Indicators of broader economic, environmental and social benefit 15
Pilot Circular Economy Case Study Analysis - DES ii Prepared by BDO EconSearch
5. Client Example 3 Analysis 17
5.1. Description 17
5.2. Results 17
5.2.1. Increased functionality and/or longevity of goods/services 17
5.2.2. Decreased materiality of goods/services 18
5.2.3. Indicators of broader economic, environmental and social benefit 18
6. Organisational Level Analysis 20
6.1. Description 20
6.2. Results 20
6.2.1. Increased functionality and/or longevity of goods/services 20
6.2.2. Decreased materiality of goods/services 20
6.2.3. Indicators of broader economic, environmental and social benefit 21
7. Discussion 22
References 24
Appendix 1 Initial List of Indicators for the Pilot Case Study 25
Pilot Circular Economy Case Study Analysis - DES iii Prepared by BDO EconSearch
TABLES
Table 2-1 Alternative scenarios for the analysis ......................................................................4
Table 2-2 Circular economy indicators used in assessment .........................................................5
Table 2-3 DES customer groups and client numbers used in the analysis .........................................8
Table 2-4 DHS Equipment Program indicative budget, 2019-20a ...................................................9
Table 3-1 Equipment needs, client example 1 ...................................................................... 10
Table 3-2 Net benefit results (annualised net present value, $), client example 1a ......................... 13
Table 4-1 Equipment needs, client example 2 ...................................................................... 14
Table 4-2 Net benefit results (annualised net present value, $), client example 2a ......................... 16
Table 5-1 Equipment needs, client example 3 ...................................................................... 17
Table 5-2 Net benefit results (annualised net present value, $), client example 3a ......................... 19
Table 6-1 Net benefit results (annualised net present value, $), SA Government Programsa ............... 21
Pilot Circular Economy Case Study Analysis - DES iv Prepared by BDO EconSearch
ABBREVIATIONS
AT assistive technology
CoS Continuity of Support
DES Domiciliary Equipment Service
DHS Department of Human Services
GISA Green Industries SA
NACA National Aged Care Alliance
NDIS National Disability Insurance Scheme
SA South Australia
DOCUMENT HISTORY AND STATUS
Doc Ver Doc Status Issued To Qty elec Qty hard Date Reviewed Approved
1 Draft Andrew Hutcheon
Ian Harvey
1 Word
1 pdf
- 20/12/18 HCB -
2 Draft Andrew Hutcheon
Ian Harvey
1 Word
1 pdf
- 20/2/19 HCB -
3 Final Andrew Hutcheon
Ian Harvey
1 Word
1 pdf
- 21/3/19 HCB JBM
Printed: 21/03/2019 5:12:00 PM
Last Saved: 21/03/2019 5:12:00 PM
File Name: I:\CLIENTS\GISA\ES1822_Circular Economy Case study\Reports\Pilot CE Case Study_DES_Final_180321.docx
Project Manager: Julian Morison
Principal Author/s: Heather Bailey
Name of Client: Green Industries SA
Name of Project: Pilot Circular Economy Case Study – Domiciliary Equipment Services
Document Version: 3
Job Number: 1822
Pilot Circular Economy Case Study Analysis - DES v Prepared by BDO EconSearch
EXECUTIVE SUMMARY
Green Industries SA (GISA) is a South Australian government statutory authority that helps develop the green economy. As part of this remit GISA is promoting the development of a more circular economy in South Australia. GISA is developing case studies using South Australian examples of applied circular economy thinking. More specifically, GISA is seeking assistance to identify suitable metrics which will tell the story (i.e. appropriate and accessible) and will help track progress (i.e. measurable and consistent) at the company level. This study applies a set of circular economy indicators to a pilot case study organisation.
The case study organisation, the Domiciliary Equipment Service (DES), is a business unit of the South Australian government Department of Human Services (DHS) and provides assistive technology (AT) that allow people to maintain their independence and safety in the community. The DES business model differs from standard government delivery of programs model by loaning equipment to clients, taking back equipment when no longer needed and refurbishing them where possible. The standard equipment supply model, sources and supplies equipment to clients who are responsible for their ongoing care, maintenance and disposal.
GISA approached DES to be a case study to demonstrate an example of an organisation applying circular economy thinking. From a circular economy perspective, this case study demonstrates using resources efficiently and avoiding unnecessary waste by maintaining AT equipment in use for as long as is safely possible. This is enabled by a service model rather than a product supply model. The motivation for this model by DES is to lower costs, shorten equipment supply times and to be more environmentally sustainable.
This study analysed the performance of the DES service model against a standard government delivery of programs model, using a number of circular economy indicators, namely:
1. Relative life of equipment
2. Relative intensity of use of equipment
3. End of use fate of equipment materials
4. Lifecycle cost to deliver AT.
With regard to the functionality and longevity of goods and services aspects of a circular economy business model, the average life of a piece of equipment was estimated to be 5.0 years under the DES service model compared with 2.7 years under the standard equipment supply model, meaning that equipment is used for 86 per cent more time under the DES service model compared to the standard equipment supply model. Likewise, the estimated average number of uses per piece of equipment was estimated to be 8.1 uses under the DES service model and 1.1 uses under the standard equipment supply model, meaning that under the DES service model the same bundle of equipment is used by 7 times as many clients. With the same equipment purchase budget and equipment pool, DES is able to get more utility out of equipment using Government funding more effectively and, importantly, servicing twice as many clients1.
1 Servicing an estimated 3,824 clients per year under the DES service model compared with 1,868 clients per year under the standard equipment supply model.
Pilot Circular Economy Case Study Analysis - DES vi Prepared by BDO EconSearch
With regard to the materiality of goods and services, end of use fate of equipment materials was analysed by estimating the proportion of equipment reused, recycled and unrecovered (i.e. sent to landfill) at the end of their use. The end of use fate of equipment was estimated to be:
x DES service model: 38 per cent to landfill, 38 per cent to recycling and 24 per cent to reuse
x Standard equipment supply model: 55 per cent to landfill, 37 per cent to recycling and 9 per cent to reuse.
These results demonstrate that the DES business model diverts a significant amount of material from landfill to reuse. This is consistent with the DES aim to maximise the useful life of equipment and components and maintain their value through reuse.
With regard to indicators of broader economic, environmental and social benefit, the lifecycle cost indicator was assessed. This was estimated as the sum of investment2, operating and social3 costs net of social benefits4 discounted to a present value. For the same equipment budget, the DES service model delivered approximately $0.7 million annually in net benefits. Relative to the standard equipment supply model, increased costs of equipment refurbishment and facility operating costs (approximately $1.7 million) were offset by approximately $2.4 million in benefits from avoided welfare costs to clients (from reduced equipment supply times) and better use of clinician resources. This net benefit was achieved whilst servicing twice as many clients.
The analysis included three client example analyses which were representative of the DES customer groups funded by the SA Government. They covered:
x Client with changing needs over a long period
x Client using the palliative care system
x Client with needs that are stable.
The palliative care client example analysis produced the best results in terms of the circular economy indicators assessed, whilst the long-term, stable needs client example produced the most modest results. However, it should be noted that for all the circular economy indicators across all the client examples the results were more positive than the equivalent examples under the standard equipment supply model.
Palliative care clients have short-term needs for a number of AT equipment. In this situation, with the standard equipment supply model there is significant potential for ‘wastage’ of equipment and the DES service model, where equipment can be efficiently recovered, refurbished and returned to use, is a much more efficient business model. This is much less the case with clients with long-term, stable AT equipment needs, where equipment is more likely to be used fully over the equipment’s effective life. However, the DES service model still provides benefits by reducing costs, reducing wastage of equipment and clinician resources and reducing equipment supply times.
2 Equipment purchase and refurbishment. 3 Equipment delivery time impacts on clients. 4 Better use of clinician resources.
Pilot Circular Economy Case Study Analysis - DES 1 Prepared by BDO EconSearch
1. INTRODUCTION
1.1. Background
Green Industries SA (GISA) is a South Australian government statutory authority that helps develop the green economy in response to the demand for clean and green produce, and the reduction of emissions to air, water and soil from industry. GISA promotes the circular economy, resource efficiency and the conservation and recovery of scarce resources5.
As part of this remit GISA is promoting the development of a more circular economy in South Australia (SA). Among other related activities, GISA is developing case studies using South Australian examples of applied circular economy thinking. More specifically, GISA is seeking assistance to identify suitable metrics which will tell the story (i.e. appropriate and accessible) and will help track progress (i.e. measurable and consistent) at the company level.
GISA has engaged BDO EconSearch to:
1. Provide written advice to GISA relating to indicator and metric choice for use in circular economy case studies in SA
2. Application of 1 above to the development of a pilot circular economy case study.
This paper responds to the second requirement.
1.2. The Case Study Organisation
The Domiciliary Equipment Service (DES) is a business unit of the South Australian government Department of Human Services (DHS). DES provides assistive technology (AT). Services include the supply of a full range of equipment and home modifications, as well as repair services that allow people to maintain their independence and safety in the community.
DES currently manages the AT needs of more than 15,000 people in South Australia. Clients include people eligible for the DHS Equipment Program, the National Disability Insurance Scheme (NDIS), the Lifetime Support Scheme, hospitals, community care agencies, as well as individuals privately hiring equipment.
DES maintains over 400 types of equipment in stock, available for rapid dispatch to clients as required. These items are typically ‘on loan’ and as part of the package DES provides delivery and installation, training of clients in safe use of equipment, equipment repairs and replacement as required.
DES refurbishes readily available items from a single pool of equipment to lower costs, shorten equipment supply times and to be more environmentally sustainable. The equipment supply cycle is described in Figure 1-1.
5 https://www.greenindustries.sa.gov.au/
Pilot Circular Economy Case Study Analysis - DES 2 Prepared by BDO EconSearch
Figure 1-1 Equipment supply cycle, DES
Source: DES.
The DES business model differs from standard government delivery of programs model. The DES service model loans equipment to clients, taking back equipment when no longer needed and refurbishing them where possible. The standard equipment supply model sources and supplies equipment to clients who are responsible for their ongoing care, maintenance and disposal. Details of both models are further described in Table 2-1.
1.3. Scope of Study
The study analysed DES programs that the SA government will retain funding and policy responsibility for post NDIS and Ageing reforms. Analysis was based on 2017/18 DES data, assuming static client numbers (i.e. demand) and client needs. The analysis included three client example analyses and an organisational level analysis. The client examples were representative of the DES customer groups funded by the SA Government.
The client examples were:
x Client with changing needs over a long period
x Client using the palliative care system
Pilot Circular Economy Case Study Analysis - DES 3 Prepared by BDO EconSearch
x Client with needs that are stable.
The organisational level and client example analyses were compared against a standard government delivery of programs model. The standard equipment supply model was based on Disability SA model prior to transfer to DES (described in more detail in Table 2-1).
1.4. Report Structure
The remainder of the report is structured in six parts:
Section 2 – Method of analysis
Sections 3 to 5 – Client example analysis
Section 6 – Organisational level analysis
Section 7 – Discussion.
Pilot Circular Economy Case Study Analysis - DES 4 Prepared by BDO EconSearch
2. METHOD OF ANALYSIS
The organisational level and client example analyses were compared against a standard Government delivery of programs model (Base Case). The standard equipment supply model was based on Disability SA model prior to transfer to DES. The two business models are described in Table 2-1.
Table 2-1 Alternative scenarios for the analysis
Scenario Description
Base Case Clinician works with client to identify an equipment product that will meet a specific need.
Clinician will research all items from a network of suppliers.
Supplier provides a quote for the item and the clinician then supplies that along with a clinical
prescription to the funder. Once approved by the funder (or client), the supplier then sources
the new item and delivers and installs it once stock becomes available.
If modifications are required these are sourced and quoted on a case by case basis.
The client is responsible for individual repair arrangements with each supplier. Funders will
then need to approve repairs for specific equipment items.
DES service model Clinician works with client to identify an equipment item from a range of approximately 400,
readily available items to meet a specific need. These items are normally pre-approved, by
the funder, for supply to their client.
Readily available items may be supplied refurbished or new (same loan price). With the pre-
approval from the funder, DES will deliver and install the item from existing stock.
In the case of a readily available item not meeting a specific need, DES may quote for the supply of a piece of equipment purchased specifically for that need. Once approved, this is
then sourced, delivered and installed.
If modifications are required these are sourced and quoted on a case by case basis.
The client will contact DES to arrange all repair services for their equipment. Repairs are
included in the loan costs.
2.1. Circular Economy Indicators Assessed
As part of this study an initial list of circular economy indicators, across four circular economy descriptors, was developed for product/service and organisational level analysis (see Appendix 1 and EconSearch 2018). From that list, the following indicators were analysed:
Descriptor 1: Increased functionality and/or longevity of goods/services
1. Relative life
2. Relative intensity of use
Pilot Circular Economy Case Study Analysis - DES 5 Prepared by BDO EconSearch
Descriptor 2: Decreased materiality of goods/services
3. End of use fate of equipment materials
Descriptor 3: Decreased dependence on use of GHG causing fossil fuels
Indicators not assessed, not within scope.
Descriptor 4: Indicators of broader economic, environmental and social benefit
4. Lifecycle cost.
Each of these indicators are described in more detail in Table 2-2.
Table 2-2 Circular economy indicators used in assessment
Indicator Description
Relative life of
equipment
Calculated as the average life of the bundle of equipment supplied under the DES service
model divided by the average life of the bundle of equipment supplied under the standard
equipment supply model.
Relative intensity of use
of equipment
Calculated as the average number of uses6 during the bundle of equipment’s’ life under the DES service model divided by the average number of uses during the bundle of
equipment’s’ life under the standard equipment supply model.
End of use fate of
equipment materials
Calculated as the proportion of equipment reused, recycled and unrecovered (i.e. sent to
landfill) at the end of their use. Compared with the standard equipment supply model.
Lifecycle cost to deliver
AT
Calculated as sum of investment (equipment purchase and refurbishment), operating and
social (i.e. equipment delivery time impacts on client) costs net of social benefits (i.e. better use of clinician resources) discounted to a present value. Compared with the
standard equipment supply model.
2.2. Client example analyses – data and assumptions
DES service model
DES provided, for each of the equipment items, the following data:
x Average supply time (days)
x Average life (years) – based on age at write-off
x Purchase price
6 Where one use is the equivalent of one prescription (and consequent use) of one piece of equipment by one client.
Pilot Circular Economy Case Study Analysis - DES 6 Prepared by BDO EconSearch
x Refurbishment cost per issue
x Fate of equipment at write-off, namely disposal (to landfill or recycling), sale or gift, lost or stolen and spare parts.
These data were extracted from the DES equipment tracking data base.
Items were assumed to be new at time of issue, to be comparable with the standard equipment supply model (Base Case).
End of use fate of equipment materials
For items with a life less than the length of use, it was assumed that they were replaced when they reached their safe life period. For items with a safe life equal to the length of use, it was assumed that they were written-off and disposed of. For items with a safe life greater than the length of use at the time of end of use, it was assumed they were returned and refurbished for reuse.
Regarding the fate of equipment items, the following were assumed:
x Disposal –50 per cent to landfill and 50 per cent to recycling
x Sale or gift – 100 per cent reuse
x Lost or stolen – 100 per cent landfill
x Spare parts – 100 per cent reuse.
Lifecycle costs
The following costs and savings were analysed:
Costs
x Equipment purchase
x Equipment refurbishment
x Supply time costs to client wellbeing
Savings
x Clinician time released.
These costs and savings were identified from Massey-Westropp (2010) and discussions with DES.
Equipment purchase: Equipment purchase cost was annualised over the safe life of the equipment item.
Equipment refurbishment: Equipment refurbishment costs were applied at the end of use period for items that had not reached the end of their safe life.
Supply time costs to client wellbeing: The supply time was applied at issue and reissue, where applicable. Items were assumed to be supplied in batches, i.e. initial request items were supplied at the same time, and so forth. The item with the longest supply time from a batch was taken to be the period during which
Pilot Circular Economy Case Study Analysis - DES 7 Prepared by BDO EconSearch
the client was without appropriate equipment. Based on NACA (2018)7, it was assumed that the impact was equivalent of:
x 2 hours per week of formal care (i.e. whilst the client was without the needed equipment, the client would need this additional care to achieve the same level of activity) at $50/hr; plus
x 13 hours per week of informal care at $13.60/hr.
This cost was estimated to be $39.54/day without appropriate equipment.
Clinician time released: With a streamlined equipment ordering and supply process which reduces the time clinicians spend researching and managing the equipment ordering and supply process, DES estimated the likely clinician time released to be 6fte on the basis of their output being 100 prescriptions per week (Massey-Westropp 2010). The clinician cost per hour was based on the average between an allied health professional (at $180/hr, NACA 2018) and an allied health assistant or AT supporter (at $80/hr, NACA 2018). On this basis, a clinician cost saving per prescription of $198 was estimated. Each item was assumed to be a prescription. This was applied to each equipment item issue or reissue to estimate the clinician cost savings.
Base Case (standard equipment supply model)
Items were assumed to be new on purchase, and were assumed to be granted to the client.
End of use fate of equipment materials
At the end of use, items with a purchase price under $300 were assumed to be disposed of, and items with a purchase price above $300, were assumed to be sold or gifted, unless they were near their end of safe life. Disposal items were assumed to be disposed of to landfill or recycling at a ratio of 60:40, respectively. Sold or gifted items were allocated 100 per cent to reuse.
Lifecycle cost
The following costs were analysed:
Costs
x Equipment purchase
x Supply time costs to client wellbeing.
Equipment purchase cost was annualised over the use period of the equipment item, i.e. it was assumed that the use period equalled the life of the item of equipment.
The same approach towards estimating the supply time impacts on client welfare was applied. For items with a supply time under the DES service model of 5 days or less it was assumed they were delivered in 5 days under the Base Case. For items with a delivery time greater than 5 days, an additional 80 per cent was
7 The National Aged Care Alliance (NACA) put out a position paper on assistive technology for older Australians. Included in this paper was an economic analysis of assistive technology, from which this current study draws data and assumptions.
Pilot Circular Economy Case Study Analysis - DES 8 Prepared by BDO EconSearch
added to the time to deliver under the Base Case. This assumption was based on analysis comparing delivery times under the two models in Massey-Westropp (2010).
2.3. Organisation level analysis – data and assumptions
DES service model
The client examples used for the client example analyses were representative of the customer groups for which the SA Government will retain funding and policy responsibility post NDIS and Aged Care reforms which was the scope of the organisational level analysis (see Section 1.3). The client examples were used as the basis for aggregating the data from the client example analysis to the organisation level analysis.
DES provided the following information regarding customer groups and client numbers for the analysis (Table 2-3), which were used to aggregate the data from the client example analysis to the organisation level analysis.
Table 2-3 DES customer groups and client numbers used in the analysis
Customer group Description Client numbersa
DHS Disability >65 years of age People within the Continuity of Support Programme (CoS)
People with a disability, not within CoS but with complex equipment, home modification or wheelchair and seating
service needs
1,070
DHS: Palliative People accessing community palliative care services in
metropolitan Adelaide
1,000
DHS: Other Ageing People accessing other State funded programs previously
provided by Domiciliary Care
1,754
a Client numbers as at 16/1/2019 for ‘disability older than 65 years of age’ cohort and ‘other aging’ cohort. Palliative care
cohort based on estimated client numbers for 2017/18.
Source DES.
Relative life and relative intensity of use indicators
The indicators were estimated as the weighted average by client numbers of these indicators for the three client example analyses.
End of use fate of equipment materials
The analysis used data provided by DES on fate of equipment at write-off. The indicators were estimated as the weighted average by client numbers of the three client example analyses.
Lifecycle costs
As described above, the equipment purchase costs for the individual client analyses were aggregated to the organisational level using the client numbers for each customer group. DES provided an estimate for the Equipment Program Budget of $3.4 million for 2019/20 (Table 2-4). The aggregated equipment purchase
Pilot Circular Economy Case Study Analysis - DES 9 Prepared by BDO EconSearch
costs were adjusted to the Equipment Program budget using an adjustment factor of 0.82. This adjustment factor was applied to the aggregated cost and savings estimates derived from the client example analyses.
An addition to the lifecycle costs assessed in the client example analyses, facility operating costs were included in the organisational level analysis. These facility operating costs included building, business and staff overhead and incidental costs, but excluded equipment refurbishment costs and equipment purchase costs. Based on actual operating costs provided by DES, these facility operating costs were estimated to be $1.1 million.
Table 2-4 DHS Equipment Program indicative budget, 2019-20a
Customer group Budget ($ million)
DHS Disability >65 years of age 1.7
DHS: Palliative 1.4
DHS: Other Ageing 0.3
Total 3.4
a Excludes any clinical assessment allocations.
Base Case (standard equipment supply model)
The Base Case equipment costs per client estimated in the individual client analyses for each customer group were applied to the Equipment Program budget (Table 2-4) to estimate the client numbers by customer group for the Base Case.
Lifecycle costs
These client numbers were applied to the cost and savings estimates derived from the client example analyses.
It was assumed that there was no facility operated, and therefore no facility operating costs were applied.
Relative life and relative intensity of use indicators
The indicators were estimated as the weighted average by client numbers of these indicators for the three client example analyses.
End of use fate of equipment materials
For equipment that was assumed to be disposed of at the end of the client use in the individual client analyses, it was assumed that the equipment fate, as per the individual analyses, was 60 per cent to landfill and 40 per cent to recycling. For equipment that was assumed to be reused at the end of the client use (i.e. gifted/sold to another user) in the individual client analyses, the DES data on disposal fate at write-off was applied. The indicators were estimated as the weighted average by client numbers of the three client example analyses.
Pilot Circular Economy Case Study Analysis - DES 10 Prepared by BDO EconSearch
3. CLIENT EXAMPLE 1 ANALYSIS
3.1. Description
The first client example is an adult client diagnosed with a degenerative neurological condition. The analysis focusses on the first 10 years where the client’s needs change and become more complex. Table 3-1 describes the AT equipment needs of the client over the 10-year period.
Table 3-1 Equipment needs, client example 1
New request timeframe
Reason Equipment request for issue
Equipment to be returned
Initial request To increase safety with personal
care and mobility
Shower chair
Traymobile
Walking stick
Toilet seat raise
1 year Equipment required to assist with
community access
Manual wheelchair Walking stick
Walking frame
2 years Additional equipment due to
relapse and deterioration
Mobile shower chair
Bedstick
Scooter
Commode
Bed blocks (8)
2 years, 2
months
Return of item due to
improvement in function
Mobile shower chair
3 years Equipment required for mobility
inside the house
Customised manual
wheelchair
Manual wheelchair
Walking frame
Cushion (Jay Union)
Traymobile
4 years Additional equipment due to
relapse and deterioration
Mobile shower chair Shower chair
Hoist Toilet seat raise
Sling
5 years Powered wheelchair Commode
Pilot Circular Economy Case Study Analysis - DES 11 Prepared by BDO EconSearch
New request timeframe
Reason Equipment request for issue
Equipment to be returned
Further equipment to assist with
mobility
Bed Bedstick
Basic mattress Bed blocks
Scooter
7 years Equipment to assist with managing
pressure case
Alternating pressure
mattress
Basic mattress
Jay union cushion
ROHO cushion
10 years No change Ongoing Equipment: Customised wheelchair
Roho cushion
Alternating pressure
mattress
Hoist
Sling
Mobile shower chair
Bed
Powered wheelchair
Source: DES.
3.2. Results
3.2.1. Increased functionality and/or longevity of goods/services
Two circular economy indicators were analysed under this category:
x Relative life
x Relative intensity of use.
Relative life is calculated as the average life of the bundle of equipment supplied under the DES service model divided by the average life of the bundle of equipment supplied under the Base Case (standard equipment supply model).
The average life of a piece of equipment in this scenario is 4.2 years under the DES service model and 2.8 years under the Base Case, meaning that equipment is used for 64 per cent more time under the DES service model compared to the Base Case. In other words, the relative life indicator was estimated to be 1.64.
Pilot Circular Economy Case Study Analysis - DES 12 Prepared by BDO EconSearch
Relative intensity of use is calculated as the average number of uses8 during the bundle of equipment’s life under the DES service model divided by the average number of uses during the bundle of equipment’s’ life under the Base Case (standard equipment supply model).
The estimated average number of uses per piece of equipment was estimated to be 3.3 uses under the DES service model and 1.1 uses under the Base Case, meaning that under the DES service model the same bundle of equipment is used by almost three times as many clients (i.e. the relative intensity of use indicator was estimated to be 2.91).
3.2.2. Decreased materiality of goods/services
One circular economy indicator was analysed under this category: end of use fate of equipment materials.
End of use fate of equipment materials is calculated as the proportion of equipment reused, recycled and unrecovered (i.e. sent to landfill) at the end of their use under this client example. The DES service model is compared with the Base Case (standard equipment supply model).
The end of use fate of equipment was estimated to be:
x DES service model: 10 per cent to landfill, 10 per cent to recycling and 80 per cent to reuse
x Base Case: 47 per cent to landfill, 32 per cent to recycling and 21 per cent to reuse.
3.2.3. Indicators of broader economic, environmental and social benefit
One circular economy indicator was analysed under this category, namely lifecycle cost.
A discounted cash flow analysis was undertaken to estimate the lifecycle cost indicator, using a discount rate of 6 per cent.
The net benefit of the DES service model relative to the Base Case was estimated to be approximately $2,586 annually in present value terms. Details of the result are provided in Table 3-2.
There were relatively fewer equipment purchase and equipment supply time costs for the DES service model in comparison to the standard equipment supply model. These reduced costs were offset slightly by additional equipment refurbishment costs, giving an estimated annual cost saving of $1,981 under the DES service model relative to the Base Case. An estimated $605 per year in clinician time was saved9 under the DES service model. Overall these cost savings and additional benefits resulted in an estimated annualised net benefit of $2,586.
8 Where one use is the equivalent of one prescription (and consequent use) of one piece of equipment by one client.
9 In practice, this time is likely to be redirected away from AT equipment acquisition (not their area of expertise) towards their area of expertise (i.e. clients’ needs assessment. In other words, this value represents the avoided cost from poor use of human resources.
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Table 3-2 Net benefit results (annualised net present value, $), client example 1a
a In 2018 dollars.
Source: BDO EconSearch analysis.
DES service modelStandard equipment
supply modelNet value
Costs
Equipment purchase 3,409 4,486 -1,077
Equipment refurbishment 107 0 107
Equipment supply time 1,232 2,244 -1,012
Total costs 4,749 6,730 -1,981
Benefits
Clinician time 605 0 605
Total benefits 605 0 605
Total net benefit ($) -4,144 -6,730 2,586
Pilot Circular Economy Case Study Analysis - DES 14 Prepared by BDO EconSearch
4. CLIENT EXAMPLE 2 ANALYSIS
4.1. Description
The second client example is an adult with a palliative diagnosis requiring services for 6 months. Table 4-1 describes the AT equipment needs of the client over the 1-year period.
Table 4-1 Equipment needs, client example 2
New request
timeframe Reason Equipment request for issue Equipment to be
returned
Initial request To increase safety with personal care
and mobility
Shower chair
Traymobile
Walking frame
2 months Equipment required to assist with
community access
Manual wheelchair
4 months Additional equipment due to
deterioration
Commode
Absorbent bed sheets
6 months Equipment to assist with managing
pressure care
Bed
Alternating pressure mattress
7 months Equipment returned Shower chair
Traymobile
Walking frame
Alternating pressure
mattress
Manual wheelchair
Bed
Commode
Absorbent bed sheets
Source: DES.
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4.2. Results
4.2.1. Increased functionality and/or longevity of goods/services
Relative life is calculated as the average life of the bundle of equipment supplied under the DES service model divided by the average life of the bundle of equipment supplied under the Base Case (standard equipment supply model).
The average life of a piece of equipment in this scenario is 5.2 years under the DES service model and 0.5 years under the Base Case, meaning that equipment is used for over 1,000 per cent more time under the DES service model compared to the Base Case. In other words, the relative life indicator was estimated to be 10.3.
Relative intensity of use is calculated as the average number of uses during the bundle of equipment’s’ life under the DES service model divided by the average number of uses during the bundle of equipment’s life under the Base Case (standard equipment supply model).
The estimated average number of uses per piece of equipment was estimated to be 24.1 uses under the DES service model and 1.5 uses under the Base Case, meaning that under the DES service model the same bundle of equipment is used by almost 16 times as many clients (i.e. the relative intensity of use indicator was estimated to be 16.1).
4.2.2. Decreased materiality of goods/services
End of use fate of equipment materials is calculated as the proportion of equipment reused, recycled and unrecovered (i.e. sent to landfill) at the end of their use under this client example. The DES service model is compared with the Base Case (standard equipment supply model).
The end of use fate of equipment was estimated to be:
x DES service model: 100 per cent to reuse
x Base Case: 30 per cent to landfill, 20 per cent to recycling and 50 per cent to reuse.
4.2.3. Indicators of broader economic, environmental and social benefit
The net benefit of the DES service model relative to the Base Case was estimated to be approximately $5,901 annually in present value terms. Details of the result are provided in Table 4-2.
There were significantly fewer equipment purchase and reduced equipment supply time costs for the DES service model in comparison to the standard equipment supply model. These reduced costs were offset slightly by additional equipment refurbishment costs, giving an estimated annual cost saving of $4,317 under the DES service model relative to the Base Case. An estimated $1,584 per year in clinician time was saved under the DES service model. Overall these cost savings and additional benefits resulted in an estimated annualised net benefit of $5,901.
Pilot Circular Economy Case Study Analysis - DES 16 Prepared by BDO EconSearch
Table 4-2 Net benefit results (annualised net present value, $), client example 2a
a In 2018 dollars.
Source: BDO EconSearch analysis.
DES service modelStandard equipment
supply modelNet value
Costs
Equipment purchase 203 4,528 -4,325
Equipment refurbishment 547 0 547
Equipment supply time 252 791 -538
Total costs 1,002 5,319 -4,317
Benefits
Clinician time 1,584 0 1,584
Total benefits 1,584 0 1,584
Total net benefit ($) 582 -5,319 5,901
Pilot Circular Economy Case Study Analysis - DES 17 Prepared by BDO EconSearch
5. CLIENT EXAMPLE 3 ANALYSIS
5.1. Description
The third client example is an aging client with needs that are stable. Table 4-1 describes the AT equipment needs of the client over the 6-year period.
Table 5-1 Equipment needs, client example 3
New request
timeframe Reason Equipment request for issue Equipment to be returned
Initial request To increase safety with mobility Walking stick
2 years To increase safety with personal care
and transfers
Shower chair
Traymobile
Bedstick
Toilet seat raise
Bed blocks (8)
4 years Additional equipment required Manual wheelchair Bedstick
Commode
6 years Return of equipment Walking stick
Shower chair
Traymobile
Toilet seat raise
Bed blocks (8)
Manual wheelchair
Commode
Source: DES.
5.2. Results
5.2.1. Increased functionality and/or longevity of goods/services
Relative life is calculated as the average life of the bundle of equipment supplied under the DES service model divided by the average life of the bundle of equipment supplied under the Base Case (standard equipment supply model).
Pilot Circular Economy Case Study Analysis - DES 18 Prepared by BDO EconSearch
The average life of a piece of equipment in this scenario is 5.4 years under the DES service model and 2.9 years under the Base Case, meaning that equipment is used for 88 per cent more time under the DES service model compared to the Base Case. In other words, the relative life indicator was estimated to be 1.88.
Relative intensity of use is calculated as the average number of uses during the bundle of equipment’s life under the DES service model divided by the average number of uses during the bundle of equipment’s’ life under the Base Case (standard equipment supply model).
The estimated average number of uses per piece of equipment was estimated to be 1.8 uses under the DES service model and 1.1 uses under the Base Case, meaning that under the DES service model the same bundle of equipment is used by 64 per cent more clients (i.e. the relative intensity of use indicator was estimated to be 1.64).
5.2.2. Decreased materiality of goods/services
End of use fate of equipment materials is calculated as the proportion of equipment reused, recycled and unrecovered (i.e. sent to landfill) at the end of their use under this client example. The DES service model is compared with the Base Case (standard equipment supply model).
The end of use fate of equipment was estimated to be:
x DES service model: 4 per cent to landfill, 4 per cent to recycling and 92 per cent to reuse
x Base Case: 50 per cent to landfill, 33 per cent to recycling and 17 per cent to reuse.
5.2.3. Indicators of broader economic, environmental and social benefit
The net benefit of the DES service model relative to the Base Case was estimated to be approximately $334 annually in present value terms. Details of the result are provided in Table 5-2.
There were relatively fewer equipment purchase and equipment supply time costs for the DES service model in comparison to the standard equipment supply model. These reduced costs were offset slightly by additional equipment refurbishment costs, giving an estimated annual cost saving of $97 under the DES service model relative to the Base Case. An estimated $237 per year in clinician time was saved under the DES service model. Overall these cost savings and additional benefits resulted in an estimated annualised net benefit of $334.
Pilot Circular Economy Case Study Analysis - DES 19 Prepared by BDO EconSearch
Table 5-2 Net benefit results (annualised net present value, $), client example 3a
a In 2018 dollars.
Source: BDO EconSearch analysis.
DES service modelStandard equipment
supply modelNet value
Costs
Equipment purchase 74 131 -57
Equipment refurbishment 39 0 39
Equipment supply time 19 98 -79
Total costs 132 229 -97
Benefits
Clinician time 237 0 237
Total benefits 237 0 237
Total net benefit ($) 105 -229 334
Pilot Circular Economy Case Study Analysis - DES 20 Prepared by BDO EconSearch
6. ORGANISATIONAL LEVEL ANALYSIS
6.1. Description
As described in Section 1.3, the organisational level analysis was limited to the customer groups for which the SA Government will retain funding and policy responsibility post NDIS and Aged Care reforms, namely:
x Disabled people over 65 years of age
x People accessing community palliative care services
x People accessing other State funded programs previously provided by Domiciliary Care.
6.2. Results
6.2.1. Increased functionality and/or longevity of goods/services
Two circular economy indicators were analysed under this category:
x Relative life
x Relative intensity of use.
Relative life is calculated as the average life of the bundle of equipment supplied under the DES service model divided by the average life of the bundle of equipment supplied under the Base Case (standard equipment supply model).
The average life of a piece of equipment in this scenario is 5.0 years under the DES service model and 2.7 years under the Base Case, meaning that equipment is used for 86 per cent more time under the DES service model compared to the Base Case. In other words, the relative life indicator was estimated to be 1.86.
Relative intensity of use is calculated as the average number of uses10 during the bundle of equipment’s life under the DES service model divided by the average number of uses during the bundle of equipment’s life under the Base Case (standard equipment supply model).
The estimated average number of uses per piece of equipment was estimated to be 8.1 uses under the DES service model and 1.1 uses under the Base Case, meaning that under the DES service model the same bundle of equipment is used by 7 times as many clients (i.e. the relative intensity of use indicator was estimated to be 7.12).
6.2.2. Decreased materiality of goods/services
One circular economy indicator was analysed under this category, namely the end of use fate of equipment materials.
10 Where one use is the equivalent of one prescription (and consequent use) of one piece of equipment by one client.
Pilot Circular Economy Case Study Analysis - DES 21 Prepared by BDO EconSearch
End of use fate of equipment materials is calculated as the proportion of equipment reused, recycled and unrecovered (i.e. sent to landfill) at the end of their use. The DES service model is compared with the Base Case (standard equipment supply model).
The end of use fate of equipment was estimated to be:
x DES service model: 38 per cent to landfill, 38 per cent to recycling and 24 per cent to reuse
x Base Case: 55 per cent to landfill, 37 per cent to recycling and 9 per cent to reuse.
6.2.3. Indicators of broader economic, environmental and social benefit
One circular economy indicator was analysed under this category, namely lifecycle cost.
A discounted cash flow analysis was undertaken to estimate the lifecycle cost indicator, using a discount rate of 6 per cent.
The net benefit of the DES service model relative to the Base Case was estimated to be approximately $0.7 million annually in present value terms. Details of the result are provided in Table 6-1.
Equipment purchase costs are the same between the two equipment supply models, as expected.
There were relatively lower equipment supply time costs for the DES service model in comparison to the standard equipment supply model. These reduced costs offset slightly the additional equipment refurbishment and facility operating costs, giving an estimated additional cost of $1.4 million annually under the DES service model relative to the Base Case. An estimated $2.1 million in clinician time was saved under the DES service model. Overall this resulted in an estimated annual net benefit of $0.7 million. This net benefit was achieved whilst servicing twice as many clients (i.e. 3,824 clients per year under the DES service model compared with 1,868 clients per year under the standard equipment supply model).
Table 6-1 Net benefit results (annualised net present value, $), SA Government Programsa
a In 2018 dollars.
Source: BDO EconSearch analysis.
DES service modelStandard equipment
supply modelNet value
Costs
Equipment purchase 3,400,000 3,400,000 0
Equipment refurbishment 603,112 0 603,112
Facility operating costs 1,127,590 0 1,127,590
Equipment supply time 1,316,148 1,626,193 -310,045
Total costs 6,446,851 5,026,193 1,420,658
Benefits
Clinician time 2,106,605 0 2,106,605
Total benefits 2,106,605 0 2,106,605
Total net benefit ($) -4,340,246 -5,026,193 685,947
Pilot Circular Economy Case Study Analysis - DES 22 Prepared by BDO EconSearch
7. DISCUSSION
This study analysed the performance of the DES service model against a standard government delivery of programs model, using a number of circular economy indicators, namely:
1. Relative life of equipment
2. Relative intensity of use of equipment
3. End of use fate of equipment materials
4. Lifecycle cost to deliver AT.
With regard to the functionality and longevity of goods and services aspects of a circular economy business model, the average life of a piece of equipment was estimated to be 5.0 years under the DES service model compared with 2.7 years under the standard equipment supply model, meaning that equipment is used for 86 per cent more time under the DES service model compared to the standard equipment supply model. Likewise, the estimated average number of uses per piece of equipment was estimated to be 8.1 uses under the DES service model and 1.1 uses under the standard equipment supply model, meaning that under the DES service model the same bundle of equipment is used by 7 times as many clients. With the same equipment purchase budget and equipment pool, DES is able to get more utility out of equipment using Government funding more effectively and, importantly, servicing twice as many clients11.
With regard to the materiality of goods and services, end of use fate of equipment materials was analysed by estimating the proportion of equipment reused, recycled and unrecovered (i.e. sent to landfill) at the end of their use. The end of use fate of equipment was estimated to be:
x DES service model: 38 per cent to landfill, 38 per cent to recycling and 24 per cent to reuse
x Standard equipment supply model: 55 per cent to landfill, 37 per cent to recycling and 9 per cent to reuse.
These results demonstrate that the DES business model diverts a significant amount of material from landfill to reuse. This is consistent with the DES aim to maximise the useful life of equipment and components and maintain their value through reuse.
With regard to indicators of broader economic, environmental and social benefit, the lifecycle cost indicator was assessed. This was estimated as the sum of investment12, operating and social13 costs net of social benefits14 discounted to a present value. For the same equipment budget, the DES service model delivered approximately $0.7 million annually in net benefits. Relative to the standard equipment supply model, increased costs of equipment refurbishment and facility operating costs (approximately $1.7 million) were offset by approximately $2.4 million in benefits from avoided welfare costs to clients (from reduced
11 Servicing an estimated 3,824 clients per year under the DES service model compared with 1,868 clients per year under the standard equipment supply model.
12 Equipment purchase and refurbishment. 13 Equipment delivery time impacts on clients. 14 Better use of clinician resources.
Pilot Circular Economy Case Study Analysis - DES 23 Prepared by BDO EconSearch
equipment supply times) and better use of clinician resources. This net benefit was achieved whilst servicing twice as many clients.
The analysis included three client example analyses which were representative of the DES customer groups funded by the SA Government. They covered:
x Client with changing needs over a long period
x Client using the palliative care system
x Client with needs that are stable.
The palliative care client example analysis produced the best results in terms of the circular economy indicators assessed, whilst the long-term, stable needs client example produced the most modest results. However, it should be noted that for all the circular economy indicators across all the client examples the results were more positive than the equivalent examples under the standard equipment supply model.
Palliative care clients have short-term needs for a number of AT equipment. In this situation, with the standard equipment supply model there is significant potential for ‘wastage’ of equipment and the DES service model, where equipment can be efficiently recovered, refurbished and returned to use, is a much more efficient business model. This is much less the case with clients with long-term, stable AT equipment needs, where equipment is more likely to be used fully over the equipment’s effective life. However, the DES service model still provides benefits by reducing costs, reducing wastage of equipment and clinician resources and reducing equipment supply times.
Pilot Circular Economy Case Study Analysis - DES 24 Prepared by BDO EconSearch
REFERENCES
EconSearch 2018, Circular Economy Case Studies – Potential Indicators Working Paper, a report to Green Industries SA, August.
Massey-Westropp 2010, The Department for Families and Communities Equipment Program: Service delivery and impact 2009-10, Domiciliary Care SA, August
National Aged Care Alliance (NACA) 2018, Assistive Technology for Older Australians, Position Paper, June.
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The nature and scope of work has been determined by agreement between BDO and the Client. This consulting engagement does not meet the definition of an assurance engagement as defined in the ‘Framework for Assurance Engagements’, issued by the Auditing and Assurances Standards Board, Section 10.
Except as otherwise noted in this report, we have not performed any testing on the information provided to confirm its completeness and accuracy. Accordingly, we do not express such an audit opinion and readers of the report should draw their own conclusions from the results of the review, based on the scope, agreed-upon procedures carried out and findings.
Pilot Circular Economy Case Study Analysis - DES 25 Prepared by BDO EconSearch
APPENDIX 1 INITIAL LIST OF INDICATORS FOR THE PILOT CASE STUDY Appendix Table 1-1 Initial list of indicators for the pilot case study
Indicator Quantitative or qualitative?
Data and method Notes
Increased functionality and/or longevity of goods/services
Relative life Quantitative Calculated as: average life of producta/average life of industry
standard product
Relative intensity of use Quantitative Calculated as: average no. functional uses during product’s
life/ average no. functional uses during industry standard
product’s life
Relative utility Quantitative Calculated as: relative life * relative intensity of use
Decreased materiality of goods/services
Material content of
product
Quantitative Proportion (by mass) of virgin, reused and recycled material content of a product. Indicators can be compared to an
industry standard product
This can be assessed on a per item or a per functional
use basis
End of life fate of
product materials
Quantitative Proportion (by mass) reused, recycled and unrecovered waste.
Note that unrecovered waste includes components sent
straight to waste (landfill, WtE) and unrecovered waste from recycling and reuse streams. Reused and recycled components
are net of unrecovered waste from recycling and reuse streams
As above
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Indicator Quantitative or qualitative?
Data and method Notes
Decreased dependence on use of GHG causing fossil fuels
Energy footprint Quantitative Calculated as the energy consumption over the life of the
product: sum of embedded energy consumption in the production of the product inputs, product manufacture,
product use, product disposal. Compared against the industry
average product
Unlikely to be assessed with DES case study due to
complexity of case study. Is likely to require access to
LCA expertise and databases
Carbon footprint Quantitative Calculated as the GHG emissions over the life of the product: sum of embedded energy consumption in the production of the
product inputs, product manufacture, product use, product
disposal. Compared against the industry average product
See above
Indicators of broader economic, environmental and social benefit
Toxic material
substitution
Qualitative Substitution of toxic materials with less toxic materials. Toxic
materials: materials on the SIN list*. Less toxic materials:
materials not on the SIN List
*Substitute It Now! (SIN) List from the International
Chemical Secretariat (ChemSec): the chemicals on the SIN List have been identified by ChemSec as Substances
of Very High Concern based on the criteria established by
the EU chemicals regulation REACH
Lifecycle cost Quantitative Calculated as sum of investment/capital/production costs,
operating costs and end-of-life costs net of any quantified social benefits discounted to a present value. Compared
against the industry average product
Pilot Circular Economy Case Study Analysis - DES 27 Prepared by BDO EconSearch
Indicator Quantitative or qualitative?
Data and method Notes
Return on investment Quantitative Calculated as profit generated by the investment/investment
cost. Can be calculated from lifecycle cost analysis
May need to be calculated as a social return on investment for DES case study, where profit is replaced
by social benefits
Payback period Quantitative Calculated as the amount of time it takes for the profit
generated by the investment to pay for the cost of the
investment. Can be calculated from lifecycle cost analysis
May not be applicable to DES case study
Local employment Quantitative Calculated as the number of fte jobs in SA maintained per functional unit of the product relative to the equivalent
industry standard product
This may not be applicable to all case studies
a Note that the term ‘product’ is used in the table, but is interchangeable with ‘service’.
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